Welcome To The Blackstone Recovery: Over 11 Million Americans Spend More Than Half Their Income On Rent

As we wrote most recently in November, the median asking rent in the US just rose to an all time high...

... explained by the lowest US homeownership rate in nearly 20 years.

And while the charts above mean another year of record bonuses for America's largest landlord, Wall Street-based Blackstone, they also mean something else for millions of ordinary Americans: a choice, which as Bloomberg summarizes, “We either eat, or we pay rent.”

Indeed, in the new normal, the recovery means an ordinary American worker either has a roof above their head, or food on the plate. The two increasingly are exclusive.

No, that's not a joke: here are the facts - an estimated 11.3 million Americans were spending more than half their income on rent in 2011, according to the Harvard analysis based on latest available Census data. That number represented a 28 percent increase from 2007.

But... but ... how is this possible? After all, the recovery, right? Wrong.

Stagnant incomes and increased demand for cheap apartments spurred the rise. Between 2007 and 2012, real median renter incomes fell by 7.6 percent, based on Census data compiled by the Joint Center. The number of renters climbed 11 percent between 2007 and 2011, U.S. Department of Housing and Urban Development data show. A Census report released this month found that 31.6 percent of Americans lived in poverty for at least two months between 2009 and 2011, an increase from 27.1 percent over the 2005 to 2007 period.

And the nail in the coffin: the annual rate of change in real disposable income per capita just went negative.

The rest of the story is well-known. Wall Street landlords, who have access to cheap funding, demand a high cap rate, and as a result rents keep going higher and higher, and since the cost of capital is still sufficiently low to where even a less than fully rented out complex will generate a positive return, there is no impetus to lower prices in order to generate more demand (well, everywhere except perhaps in New York of all places, where rents continue to decline). Alas, for others this dynamics means being forced to move out (and not being able to squat in a house in which the mortgage has not been paid for years). Such as Hector Pinedra:

Hector Pineda spends 60 percent of his income renting a $1,500-a-month apartment for his family in Alexandria, Virginia. With housing around him slated to be torn down and replaced by pricier units, the 33-year-old cook worries his rent will go up or his building too will be demolished.

In the neighborhood where Pineda lives with his wife and their two sons, redevelopment will claim many of the area’s 2,500 affordable housing units, starting as early as this year, said Derek Hyra, an associate professor of Urban Affairs and Planning at Virginia Tech and a member of the Alexandria Planning Commission.

While the city and developers have pledged to provide 800 affordable apartments, Pineda says he expects many of his neighbors will have to move to find lower rents.

“This project is for people with money,” said Pineda. “I, working to clean homes, in a restaurant, can pay $2,000 to $3,000 for an apartment? Never.”

Hector is just one of millions of Americans who are in the same boat. And what makes it worse is that any potentially affordable housing will soon blow up, literally.

The cheapest housing units across the nation are the most likely to be demolished, and new construction typically commands higher rents, according to an analysis by the Harvard Joint Center for Housing Studies. Meanwhile, foreclosures that soared after the housing bubble burst in 2007 turned thousands of former homeowners into renters, heating up competition for affordable units.

And when there is an entire group of people - read potential voters - that is increasingly angry due to the capital misallocation courtesy of the Fed, what happens? Why the government gets involved of course.

The number of households who were potentially eligible for housing assistance ballooned to 19.3 million in 2011 from 15.9 million in 2007. Meanwhile, the number of very low-income renters receiving support barely climbed, to 4.6 million from 4.4 million, the Joint Center analysis found.

Programs including the Section 8 housing choice voucher program didn’t expand in line with rising demand during the recession. The vouchers are the federal government’s main program for helping very low-income families, seniors and the disabled afford private housing and are administered by local agencies. By subsidizing rents, they can reduce payments to 30 percent of earned income.

Unfortunately, when the government gets involved, it always gets worse. And get involved even more it will. Guaranteed:

The number of renter households will increase by between 4 million and 4.7 million over the next decade, based on Joint Center projections. As baby boomers age into retirement the number of renting seniors will increase by 2.2 million, and that increase in fixed-income renters will drive up demand for assisted units.

But since the government's incursion will merely accelerate the unaffordability of prevailing housing prices, this means that America is set for the first wave of reverse migrations, away from the coastal megapolises and into the heartland, in decades: "Without a clear fix, people and businesses may leave the most expensive rental markets -- such as San Francisco, where rent appreciated 10.6 percent year-on-year in December 2013, according to data from real estate researcher Trulia Inc., based in San Francisco. They may move to places where workers can afford to live, said Mark Calabria, director of financial regulation studies at the Washington-based Cato Institute."

That, or they may just opt out for the kind of "affordable" housing they can still get Uncle Sam's loans to fund: cars.

And so, the New Normal recovery will truly be televised: from the "bedroom" on the rear seat of your government loan-purchased Chevy Tahoe.

Blackstone is the de facto AUM of the Fed itself, so expect the U.S. Government (Congress, Treasury, Executive Branch, etc.) to do everything & anything in their powers to keep as many of those 12 million empty residences (the shadow inventory) from being listed for sale, rent or otherwise coming to market, as they have to "get to work" for their bankster masters.

A tsunami of price deflation will ensue if they don't sloooooowly trickle that stream over many, many years. Given that 1/3 of banks are insolvent but for mark-to-fantasy accounting rules already, there'd be bank blood flowing like a tidal wave.

This is outrageous! I have been priced out of the housing market because I have morals and will resist because I hold a small amount of virtue that allows me to stand firm on my decisions. Even if I would have bought during the onslaught of deflation from 2009-2011, I would have been surrounded by either boomers selling, FHA "owners," or rentals from blackstone.

I want to verbally defecate on hell bound Bernanke, Yellen, political sell outs, multi-national conglomerate CEOs, and their staff. Indignation is highly activating and will nurture my resistance until my passage away from this human created monstrosity of deceit and usury(aka as a neo-feudal kleptocratic corporatocracy).

Until my time arrives to leave, I will not be blinded to the truth and will form what is necessary to strive for Liberation.

I know a guy existing in abandoned boat in the woods. We have a couple blue tarp camps in woods that I know of, maybe more. Lots of illegal apts, the closets are turned into a micro, hotplate and sink kitchen. Bath down the hall. People living in rough finnished basements. Living in cars. Abandoned passenger rail cars. One guy lived in a uber rich guys woods. Dug a underground knoty pine mini palace so hidden the NVA would of been proud. Deer hunters found it. Lots of abandoned, forclosed houses and commercial spac.A couple of tradesmen living in industrial bays/ garages.

A few families stopped mortgage payments years ago. Still in the house.

I have no idea of how many people live off rice and church can food, have the heat off cause they cant afford power, oil, taxes. Turn the main oil burner switch on only for a few hours. Ditto the main electricaI breaker

I walk for health and there are a lot of really really blackout dark houses at 7PM that I know people live there.

The important thing is to keep asset prices high. 2-3 decades and incomes should recover

You live in Massachusetts? Get out of there now! That state is imploding slowly. The implosion is following an exponential curve and soon it will be horrific. Move to a part of the country that no one else wants to go to. I'll give you a hint. Look at your favorite apartment hunting website. Look at other states and see what rates you can get. That state is going to kill itself with skyrocketing property values. It will end just like the Weimar Republic.

Somewhat comely in a relative way. Those fake boobs look like melons on a wall. If youre going to do fake, at least make an effort to appear real. I've considered tattooing " my eyes are up here" with an arrow indicator for Mr M. who does seem to relish my natural 36D rack.

I am not by any means trying to side with the Blackstones of this world, but does anyone know to what extent rent increases have been driven by property tax increases?

It is however a general theme in other countries as well, where the cost to buy or rent the lower end of the market moves much faster than just about any other segment. This of course is the result of people being increaingly priced out of the market.

"Another very important development is in the housing industry, where it seems nothing new was learned by the major collapse in 2008-09. Blackrock has been buying a large number of distressed single family homes. It has sold a $500 million IOU that is secured not by the homes but merely by the rents on 3,200 of the homes it has purchased. Really, it’s a bad joke, because to quote Yogi Berra, “It’s déjà vu all over again!” The $500 million is being split into tranches where you can own AAA rated paper that pays a mere 1.3% per year down to the “F” portion, which pays a pitifully low 3.8% as long as all the renters meet all their payments. Amazing!"

I know young people who make 1600 euro's net and rent a appartment of 1100 a month.
They could rent a smaller one... but image... it's the iPhone generation.
And for the rest they stop living. If you tell them "let's go for lunch" they turn white because that's 30 euro's they don't have.

There's appartments that rent for 600 a month also. A bit smaller and not in the city. Drive 10 minutes to the countryside and you can rent a villa for 1100 a month.

Rent Control and Eminent Domain are on the menu but Wall Street is fighting them fiercely. Bu tthing that can happen is to not pay your rent for several months and let them throw you out. Courts are backlogged and don't worry about finding another place. There are too-many-to-count rentals out there; the market is flooded with them.

Let us not misplace the blame on Blackstone - it sits squarely on the Fed, who have destroyed all 'safe' investments that 'savers', pension funds, and even hedge funds had available to them. Blackstone should be applauded for taking advantage of nearly free Fed money being given to them in order to make investments -- and at least they are investing in a tangible asset (i.e. housing) instead of chasing stocks. Of course, this does nothing to help the economy, or to help renters, or to help employment -- but hey, the Fed's response is that the renters would probably be that they should have bought stocks with the other half of their income...

What percentage of income spent on rent constitutes slavery? We gotta be getting pretty close, especially considering that modern slaves/Americans also need to pay for food, clothes, gas, healthcare, and other necessities (is porn a necessaity?).

BUT in places like NYC you have rent regulations holding rents DOWN, courts bending over backwards in favor of tenants (just TRY and evict one for nonpayment of rent or other causes), people hold onto cheap apartments while living elsewhere and government pays for poor - and lousy - tenants who destroy things. Got to live the people who dump trash out windows instead of walking it to the basement (a regular when we lived in the Bronx). One family was renting a HOUSE and hadn't EVER paid rent on it (this was back in the late 80's). Had a section 8 tenant in an apartment in my parents old house - NO damage deposit. Spent two weeks cleaning the place and repainting (her kid painted two rooms BLACK). Pain in the ass tenant - never again for Section 8.

So....... you have to be NUTS to be a landlord in some markets. Know people who have a small apartment building - ONE bad tenant can push you into serious losses while in the best of tiems you're not going to make much.

Actually this is a brilliant solution to several problems: if Americans can no longer eat due to high rents, then the obesity problem will go away and and Obamacare will become economically workable, not to mention that the unemployed will fade away, too.

One of the most disturbing trends I followed in 2006 was that of the private REITs. It was common to find these non-public REITs with 30 to 1 leverage against their purchases: which were mostly nursing homes, land and student housing. If the collapse had not occurred when it did, I wonder what would have become of the cost to reside in a nursing home given the feeding frenzy that was in effect between the various interests as they jockeyed for position to own as many of these facilities as possible.

You don't hear much, and you can find even less, of the activities of these non-public REITs now in 2014, but clearly, one of the misallocated resources of easy money has to be a replacement of leverage for lending (-best term I can come up with for now). Where a $1 million investment could be secured with about $33,500 in equity at a 5.5% repayment rate, now, that same investment amount is likely backed by $200,000 of equity at 3.7%. What is not considered however is that since $200,000 of tier 1 or tier 2 assets back that loan, I wonder if there is anything to prevent that equity amount from being applied as collateral against another property, as in a 2nd lien?

Most “rent-or-buy” comparison articles one sees are not practical, leave out numerous hidden costs of getting houses, and are usually outright real estate market propaganda, if not out and out lies. However, at least one, oddly enough from a real estate business, has been introduced that's this side of honest.